Proposed amendment to IFRS 16

The IASB has published a draft with a proposal to amend the accounting standard IFRS 16. It expresses the IASB's views on the accounting treatment of lease liabilities in the context of sale-and-lease-back transactions.

Sale-and-Lease-Back

A sale-and-lease-back is a special form of leasing in which the owner of an item sells it to a leasing company and simultaneously leases it back through a leasing contract. A sale-and-lease-back transaction is often performed when liquidity is needed. As part of the sale, the seller-lessee receives the purchase price from the buyer-lessor. In return, the seller-lessee must pay the leasing installments to the buyer-lessor. This transaction activates hidden reserves and increases the equity ratio in the company. This type of deal is particularly suitable for capital goods or machinery.

Proposed Amendment to IFRS 16

Last month, the IASB published a proposed amendment on how the seller-lessee should apply the subsequent measurement provisions in IFRS 16 to the lease liability arising from a sale-and-lease-back transaction. Specifically, the new draft proposes two changes for the seller-lessee. The IASB suggests that a seller-lessee